Efficient and Inefficient Rationing

Source: EconLog
by Pierre Lemieux

“There exist basically two ways to ration something: through market prices or by diktat from some political authority — politicians or government bureaucrats in our societies. (I neglect traditional or religious rules like in primitive societies.) Political allocation can only be arbitrary, whether it is egalitarian or not, and even if it hides behind a formal rule of law. It is arbitrary for two reasons: first, the authorities are likely to favor themselves or their most useful political clienteles; second, even if the authorities are composed of perfect altruists, they don’t have the information of time and place that is dispersed among the minds of all the participants in the economy …. Automatic allocation by prices is preferable because each user is thereby incited to take into account the value of gas (our illustrative case) for other users.” (07/25/22)